Direct way to your account

Fancy having your bank account picked every few months? Millions of people are perfectly happy for it to happen to them. The "pickers" include most of Britain's biggest retailers, councils and utility suppliers. The method they choose is the direct debit.

Direct debits are an increasingly popular way to pay off a huge variety of bills. They involve giving an organisation with which you have a financial relationship the right to withdraw a sum of money from your account

Unlike a standing order, which allows only for the withdrawal of a set amount from your bank account, a direct debit can vary month by month to match a changing bill, subject to proper notice being given of any change in how much is being debited.

For companies such as gas or electricity suppliers, the cheapest and most reliable way to collect money from their customers is via direct debits. Often, they will give discounts to customers who are prepared to use this method, as 31 million people in Britain now do. But the number of complaints to the Banking Ombudsman about direct debits have almost doubled in the past two years, and the banks are not always keen to honour their promises of a prompt refund when problems arise.

Chris Eadie, the deputy Banking Ombudsman, says that his organisation received 568 complaints regarding direct debits and standing orders in the year to September 1998, against just 292 in 1995/96. His guess is that about half of these come from direct debit users.

The banks have pledged to give customers a no-quibble refund if they let companies take too much money from their accounts, or take their payments too early. Asked whether they honour this pledge in practice, Eadie says: "They do when we come on the scene and remind them about it. We pack a little more punch than the customer on his own."

Complaints about direct debits fall into two categories. The first, involving withdrawals which are too large or taken too early, can be put right with a simple refund.

More serious are the complaints which arise from times when a direct debit which the bank has wrongly stopped. This could lead to, say, an insurance policy being cancelled - with all the potential hazards that implies. In cases like this, the Ombudsman sets any compensation he awards against the bank to reflect the policyholder's true loss and any inconvenience the customer has suffered.

Mr Eadie says: "Banks agree, as one of the conditions of joining the Ombudsman scheme, that they will honour the recommendations made by this office. For all practical purposes, a bank has to pay up whatever we recommend as compensation."

Some of the biggest discounts on offer from major utility companies arise in the newly-competitive gas market. Eastern Electricity, for example, offers gas customers a 7 per cent discount for switching to direct debits, while British Gas gives its own gas customers 6 per cent.

British Gas spokesman Richard Dymond says: "For companies like ours, direct debit is the cheapest way we can collect the money that's owed us by our customers, and that's why we're able to pass on these savings. With the number of direct debits going through the system, there can always be the odd glitch, but problems are few and far between."

As our table shows, electricity suppliers also offer savings for direct debit customers. For some reason, though, water companies seem reluctant to do this. Neither Thames Water nor Severn Trent - identified by OfWat as the UK's two biggest suppliers - give any discount at all. BT offers a small discount on line rental, but none on the cost of calls.

Some bank customers prefer to rely on standing orders, as they feel this gives them greater control. But standing orders too have their perils.

One such problem arises with mortgage repayments. Halifax spokeswoman Alison Kellington says: "Every time the mortgage rate changes, you have to change the standing order with your bank. That's where people sometimes slip up - they forget to change the standing order when the amount of the repayment goes up, and then they're not paying enough."

Whether you use standing orders or direct debits, one danger you face is that the withdrawals force your account into the red without an authorised overdraft. If this happens, your bank will almost certainly charge you for it.

Barclays, for example, charges customers pounds 20 a month if they go more than pounds 20 overdrawn for more than three working days, without gaining the bank's agreement. Arranging a direct debit in the first place, however, is generally free.